Labour's hopes that the "feelgood factor" would flood back as the economy recovers received a fresh blow today with news that the number of people claiming unemployment benefit has hit its highest level since 1997.

After two successive months of falling claims, there had been hopes that the labour market was on the turn as the economy crawled out of recession. But the Office for National Statistics said there was a surprise 23,500 rise in the claimant count in January.

The increase was the largest since last July, and took the total number of claimants to 1.64 million, the highest figure since April 1997, just before Labour swept into government.

Howard Archer at IHS ­Global Insight said the rise was a "reality check". "The economy is just not strong enough at this stage to prevent further job losses and the fall in unemployment late in 2009 had masked the fact that full-time employment was still falling appreciably," he said.

Unemployment on the wider Labour Force Survey measure, which also includes people who are out of work but not claiming benefits, fell by 3,000 in the three months to December to 2.46 million, taking the jobless rate to 7.8%.

However, John Philpott, chief economist at the Chartered Institute of Personnel and Development (CIPD), said that the 3,000 fall was "minuscule" and was explained by the jump in the number of young people turning to study to avoid the dole. Philpott has previously warned that the UK could be facing a "jobless recovery", with firms continuing to lay off staff even as growth recovers.

Yvette Cooper, the work and pensions secretary, said: "These figures show how important it is to keep increasing, not cutting back, the help for people to get work," adding that government action has helped to keep the unemployment total almost half a million lower than expected, given the severity of the recession. "Unemployment is much lower than [was] expected last year, reflecting the tough decisions families and businesses have taken to protect jobs, as well as the substantial extra investment in getting people back to work. But we know things are going to be tough for a while," she said.

The ONS said there had also been a renewed increase in the number of people who are "economically inactive", which includes those who are no longer searching for work as well as the unemployed. There is now a total of 8 million economically inactive people of working age – the highest number on record.

Shadow work and pensions secretary Theresa May said: "Behind the headlines, it's alarming that more and more people are giving up looking for a job altogether… We need to ensure these people don't fall into a trap of worklessness."

The worrying news from the labour market echoed the concerns of policymakers at the Bank of England, who have expressed caution about the strength of the economic recovery, despite pausing their £200bn emergency programme of quantitative easing. Minutes from the latest meeting of the Bank's nine-member monetary policy committee, published today, showed that they voted unanimously to suspend QE, though analysts said the details of the discussion revealed deep-seated uncertainty about the economic outlook. Melissa Kidd of consultancy Lombard Street Research said the minutes suggested that the MPC was "unanimously unsure of itself".

Today's news from the labour market added weight to Bank governor Mervyn King's argument that the sharp rise in inflation, to 3.5% last month, will prove short-lived. Official earnings figures showed little sign that workers are managing to win inflationary deals: average pay excluding bonuses in December was just 1.2% higher than a year earlier. When bonuses were included, wages were up by just 0.8%, reflecting smaller payouts for many professionals.

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